Chapter 3 Demand

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  • 1. Chapter 3: Demand
  • 2. Wants vs. Demand
    • Wants are unlimited
    • Demand is affected by cost
  • 3. Demand
    • Economically Speaking: Qty of a good or service one is willing and able to buy at various prices
      • If you are unwilling and/or unable to buy, you can’t demand
    • Law of Demand: People will buy more at a lower cost , and less at a higher cost
    • Price Effect: How Law of Demand affects us - we’ll buy more at a lower price than a higher price.
      • ( Prices = incentives, disincentives)
  • 4. How to Graph Demand:
    • Market Demand : All possible P,Q combinations!
    Price (P) Quantity (Q) Demand (D)
  • 5. What are considerations of demand?
    • Buying Power: “Bang for the Buck”
    • Diminishing Personal Value: “What’s more important to you?”
    • Diminishing Marginal Utility: “You CAN have too much of a good thing!”
      • Marginal: econ-speak for “extra”
      • Utility: econ-speak for “happiness, satisfaction”
    • Substitutes: “What else can you buy instead?”
  • 6. Elasticity of Demand
    • Elasticity : How much does a change in price affect the quantity demanded?
      • Elastic: A Price ∆ can cause an appreciable ∆ in Qty demanded.
        • Price Effect is Strong - “Luxury”
      • Inelastic: A price ∆ does not really cause a ∆ in Qty demanded
        • Price Effect is Weak - “Necessity”
      • Quick Math Test: An  in Price =  in Qty
        • If the Revenue (P * Q) increases, then inelastic
        • If the Revenue (P * Q) decreases, then elastic
  • 7. What Affects Elasticity?
    • Availability of Substitutes
      •  substitutes =  elasticity
    • % of Budget
      •  % of budget =  elasticity
    • Time
      •  time to adjust =  elasticity
      •  time to adjust =  elasticity
  • 8. Price Effect vs. Change in Demand
    • Market Demand is the combination of all P and Q demanded
    • Various points along demand curve = Price Effect
    • A Change in Demand occurs when:
      • People demand  Q at all P
      • People demand  Q at all P
  • 9. A Demand Curve Shift P Q D 1 D 2 D 3 D 1 = Original Demand D 2 = Increase in Demand D 3 = Decrease in Demand
  • 10. What Causes A Demand Shift?
    • Change in Income
    • Prices or Availability of Substitutes
    • Prices or Availability of Complements
    • Change in Weather or Season
    • Change in # of Buyers
    • Change in Styles, Tastes, Habits
    • Change in Expectations